When it comes to growing a business, many people concentrate on increasing the number or value of sales. Sales alone though don’t pay the bills; profit does. 

If you want your business to thrive, it’s important to look beyond the top line and focus on what’s actually left at the end of the day.

Why profit matters more than sales

High sales figures might look impressive, but if your costs are just as high (or higher), your business may be working hard for very little reward. Profit is the real measure of success, as it’s what gives you the freedom to reinvest, grow, or simply take home a decent return for your hard work.

Understand your gross profit

Gross profit is what’s left after you subtract the direct costs of producing your goods or delivering your services. These are things like materials, stock, or labour that’s linked directly to a sale.

For instance, if you sell a product for £100, and it costs you £60 to make or buy it in, your gross profit is £40.

Keeping an eye on gross profit helps you understand how efficient your core business activity really is. To improve it, you could:

• Review your pricing – are your products or services priced correctly for the value you offer?
• Reduce your costs – can you source materials more efficiently or cut waste?
• Focus on selling more higher-margin products – do some lines bring in more profit than others?

Why cutting prices can backfire

It’s tempting to drop prices to bring in more sales, especially when things are quiet. 

The problem with doing so is that a lower price means a lower profit per sale, which can mean that you may end up working twice as hard for half the reward. Unless your costs drop at the same time, chasing sales can shrink your margins and leave you worse off.

Know your numbers

One of the simplest ways to improve profit is to understand exactly what money is coming in and where it’s going. 

Many small businesses are surprised when they look closely at their figures. Regular financial reporting, even at a basic level, gives you the insight to spot leaks, to adjust quickly and to make confident decisions.

A clearer path to profit

Profit isn’t just about cutting costs. It’s about understanding your business and making small changes that add up over time. Business owners should be looking at budgets and plans for next year, so now is the time to get to grips with these key principals to ensure you’re protecting and maximising the profits in your business.

If you’d like support to review your margins, simplifying (or setting up) your reporting, or exploring ways to make your business more financially rewarding, please get in touch.